The government's reliance on sub-regulatory guidance in False Claims Act (FCA) cases has always been a contentious issue in intervention decisions, settlement discussions, and occasionally the courtroom. The Department of Justice (DOJ) routinely relied on agency guidance to establish that: (1) a claim submitted to a government program was false; and (2) the defendant had knowledge of the claim's falsity. The typical defense response to the DOJ's assertion included the argument that a failure to strictly adhere to agency guidance cannot make a claim false because sub-regulatory guidance was not law.
On January 25, 2018, Associate Attorney General Rachel Brand muted the debate by issuing a memorandum to the heads of all DOJ civil litigation components in an attempt to bring clarity, uniformity, and guidance to the enforcement landscape. See "Limiting Use of Agency Guidance Documents In Affirmative Civil Enforcement Cases" (the "Brand Memorandum"). The message she delivered was succinct: "[DOJ] may not use its enforcement authority to effectively convert agency guidance documents into binding rules."
The Brand Memorandum
At its core, the Brand Memorandum prohibits the DOJ from relying on an entity's noncompliance with sub-regulatory guidance to prove a violation of the FCA. The rationale is based on the DOJ's position that, "[g]uidance documents cannot create binding requirements that do not already exist by statute or regulation." The Brand Memorandum instructs litigators in FCA cases accordingly:
[DOJ] should not treat a party's noncompliance with an agency guidance document as presumptively or conclusively establishing that the party violated the applicable statute or regulation. That a party fails to comply with agency guidance expanding upon statutory or regulatory requirements does not mean that the party violated those underlying legal requirements; agency guidance documents cannot create any additional legal obligations.
These instructions evidence the DOJ's concerns that the distinction between law and guidance under the FCA had become muddled, creating confusion that in some cases led to the effective codification of sub-regulatory guidance through enforcement and circumvention of the rigors of notice-and-comment rulemaking.
However, the Brand Memorandum stops short of prohibiting any and all reliance on agency guidance documents in FCA litigation. The DOJ can use such guidance where it explains or paraphrases a legal mandate from a statute or regulation. The DOJ may also show that a party read and understood agency guidance to prove that the party had the requisite knowledge of the statutory or regulatory mandate. In addition, the Brand Memorandum is limited to civil FCA matters and does not limit any agency from relying on its own guidance documents in administrative enforcement proceedings.
The instructions laid out in the Brand Memorandum apply equally to any agency guidance establishing requirements or limitations that could be the subject of an FCA action. However, it is undisputed that the prohibition on the use of guidance to establish a violation under the FCA will have its biggest impact in the health care industry, where a labyrinth of guidance issued by federal agencies like the Centers for Medicare and Medicaid Services, the Office of Inspector General, the Drug Enforcement Agency, and the Food and Drug Administration can be overwhelming for even the most sophisticated entities. The complexity thickens with additional guidance issued by quasi-government actors like Medicare Administrative Contractors. In the end, many health care entities find themselves responsible for complying with laws, regulations, and multiple layers of program instruction that, on occasion, do not align, or worse, contradict each other. The Brand Memorandum, at minimum, should provide some degree of relief for health care providers by limiting FCA exposure in these situations.
Ultimately, this is a win for health care entities. The only question is how big? Only time will tell if this is a true game-changer or a small recalibration in the way the government investigates, evaluates, and litigates FCA cases. At minimum, entities alleged to have violated the FCA have a new defense and grounds for dismissal: the applicable statute or regulation does not prohibit the alleged conduct, and the allegation is based solely on a "violation" of sub-regulatory guidance.
While the Brand Memorandum ends, at least for now, the debate on what legal effect agency guidance has on regulated entities in FCA actions, it raises a series of new questions for businesses operating in the health care sector. What impact will this have on government intervention decisions? Will the Brand Memorandum lead to more FCA dismissals? How will the DOJ deal with appeals of agency administrative actions that relied on sub-regulatory guidance? Is there overpayment liability if the non-compliance is based solely on sub-regulatory guidance? Dealing with these questions will pose challenges for both the health care industry and its regulators, heightening the importance of having counsel with the experience and knowledge to navigate changing tides.